Tax Updates
CHILD & FAMILY TAX BENEFITS
Child tax credit:
For 2025, the maximum child tax credit for a child under age 17 is $2,200 {25.2]. The credit begins to phase out when modified adjusted gross income exceeds $400,000 on a joint return or $200,000 for all other filers. There is an additional child tax credit that can be claimed if the child tax credit otherwise allowed is limited by tax liability; the refundable amount may not exceed $1,700 per qualifying child {25.3}. The credit for other dependents is unchanged (i.e., not refundable and limited to $500 per dependent) {25.4}. The maximum child tax credit is now indexed for inflation.
Child Tax Credit (permanent update):
Status: Permanent
Effective Years: 2025 and beyond
What Changed/Details: $2,200 per child; $1,700 refundable; phaseouts unchanged
Notes: Refundable portion unchanged from 2024
Dependent care credit and exclusion:
For 2025, the child and dependent care credit is nonrefundable {25.5}. Qualifying expenses taken into account in figuring the credit are $3,000 for one qualifying individual and $6,000 for two or more qualifying individuals. The credit ranges from 35% down to 20%, depending on adjusted gross income. The exclusion for dependent care under an employer's dependent care assistance plan is $5,000 ($2,500 if married filing separately).
Child & Dependent Care Credit (update):
Status: Permanent
Effective Years: 2026 and beyond
What Changed/Details: Max credit is now 50% from 35%.
Notes: The higher credit will start in 2026.
Dependent FSAs:
Status: Permanent
Effective Years: 2026 and beyond
What Changed/Details: From $5,000/$2,500 to $7,500/$3,750 (Split for MFS)
Notes: The higher amounts will start in 2026.
Adoption expenses:
For 2025, the limit on the adoption credit as well as the exclusion for employer-paid adoption assistance is $17,280 {4.6}. The benefit phaseout range is modified adjusted gross income between $259,190 to $299,190 {25.9}. Beginning in 2025 with the passage of the One Big Beautiful Bill Act, up to $5,000 of this credit may now be refundable.
Adoption Credit (update):
Status: Permanent
Effective Years: 2025 and beyond
What Changed: Up to $5,000 is now refundable. This amount will be adjusted for inflation annually going forward.
Notes: Indian Tribal Governments may also determine special needs criteria.
Employment, Self-Employment & Wages
Self-employment tax and deduction for portion of self-employment tax; Social Security wage base:
For 2025, the tax rate on the employee portion of Social Security is 6.2% on wages up to $176,100, so Social Security tax withholdings should not exceed $10,918. Medicare tax of 1.45% is withheld from all wages regardless of amount. On Schedule SE for 2025, self-employment tax applies to earnings of up to $176,100; only 92.35% of earnings are taken into account. The 15.3% rate equals 12.4% for Social Security (6.2% employee share and 6.2% employer share) plus 2.9% for Medicare. If net earnings exceed $176,100 (after the reduction), the 2.9% Medicare rate applies to the entire amount {45.3-45.4}. One-half of the self-employment tax may be claimed as an above-the-line deduction on Schedule 1 of Form 1040 or 1040-SR {45.3-45.4}.
No tax on tips:
Status: Temporary
Effective Years: Effective 2025; window 2025-2028 per professional summaries
What Changed/Details: Up to $25,000 for MFJ, $12,500 for Single, HOH, or QSS, of tip income excluded from tax
Notes: Await detailed IRS instructions for reporting mechanics. See Sch 1-A.
No tax on overtime pay:
Status: Temporary
Effective Years: Effective 2025; window 2025-2028 per professional summaries
What Changed/Details: Up to $25,000 for MFJ, $12,500 for Single, HOH, or QSS, of overtime pay excluded from tax
Notes: Clarify withholding and reporting with employer IRs guidance
BUSINESS TAX PROVISIONS
Qualified business income deduction:
If you are a sole proprietor or have an interest in a partnership, limited liability company, or S corporation, you may be eligible for a deduction of up to 20% of qualified business income {40.24}. This deduction is a personal deduction, not a business deduction, and can be claimed whether you itemize or take the standard deduction. The taxable income amounts used to figure the deduction for 2025 have been increased for inflation.
Qualified Business Income (Section 199A) deduction:
Status: Permanent
Effective Years: 2025 and beyond (phase-in ranges widen in 2026)
What Changed/Details: 20% deduction made permanent; wider phase-in ranges; minimum $400 deduction when QBI ≥ $1,000
Notes: Specified Service Trade or Business (SSTB) limitations remain; wage/property limits still apply
First-year expensing:
For qualifying property placed in service in 2025, first-year expensing {42.3} is allowed up to a limit of $2,500,000, and the limit begins to phase out if the total cost of qualifying property exceeds $4,000,000 (42.3).
Section 179 Expensing:
Status: Permanent
Effective Years: 2025 and beyond
What Changed/Details: Limit $2.5M; phase-out $4M; indexed
Notes: Qualifying property only
100% Bonus Depreciation:
Status: Permanent
Effective Years: 2025 and beyond
What Changed/Details: Full expensing for qualified property acquired after Jan 19, 2025; phase-down repealed
Notes: Elect-out option; transitional rules
Immediate Expensing of Domestic R&D:
Status: Permanent
Effective Years: 2025 and beyond
What Changed/Details: Repeals mandatory amortization for U.S. R&D; retro elections available
Notes: Foreign R&D remains 15-year amortization
EBITDA-Based Interest Limitation:
Status: Permanent
Effective Years: 2025 and beyond
What Changed/Details: Restores EBITDA add-back for 163(j); increases deductible interest
Notes: Prevents avoiding limits via capitalization
Excess Business Loss Limitation:
Status: Permanent
Effective Years: 2025 and beyond
What Changed/Details: Limits noncorporate losses; excess becomes NOL
Notes: Thresholds indexed
Paid Family & Medical Leave Credit:
Status: Permanent
Effective Years: 2025 and beyond
What Changed/Details: Made permanent; includes insurance premiums
Notes: Clarifies aggregation and state/local coordination
Qualified Opportunity Zones & New Markets Tax Credit:
Status: Permanent
Effective Years: 2025 and beyond
What Changed/Details: QOZ made permanent with 10-year re-designation; NMTC made permanent
Notes: Expanded reporting; rural O-Funds
RETIREMENT & INVESTMENTS
Retirement plan distributions:
The SECURE Act raised the age to 72 for IRA owners who reached age 70½ after 2019, meaning those born on or after July 1, 1949. SECURE 2.0 raised the age again; anyone attaining age 72 after 2022 does not have to begin receiving RMDs until the year they reach age 73 (9.13).
IRA and Roth IRA contributions:
Contributions to a traditional IRA for 2025 can be made as long as you have earned income (or other eligible income). You may make contributions to a traditional IRA for 2025 of up to $7,000, or $8,000 if you are age 50 or older at the end of 2025, provided that you have at least $7,00/$8,000 of earned income (9.2).
CRYPTOCURRENCY, CAR LOAN INTEREST, & MILEAGE
Form 1099-DA:
Status: Permanent
Effective Years: 2025 and beyond
What Changed/Details: New form you may receive reporting digital asset transactions (cryptocurrency)
Notes: This form may not be mailed to you; you may need to download this form from your trading platform.
No tax on car loan interest:
Status: New (duration TBD)
Effective Years: Effective 2025 (duration not specified by IRS newsroom)
What Changed/Details: Interest on car loans is not taxed / may be deductible as described by IRS newsroom
Notes: Await duration and mechanics in regulations/instructions
IRS mileage allowance:
The IRS standard business mileage rate for 2025 is 70 cents per mile (43.1}. The rate for medical expense {15.9) and moving expense for certain military personnel {13.3} deductions remains 21 cents per mile for 2025, unchanged from 2024. For charitable volunteers {18.4}, the mileage rate is unchanged at 14 cents a mile for 2025.
Schedule 1-A:
Status: New (duration TBD)
Effective Years: 2025 and beyond
What Changed/Status: New schedule which may need to be completed and attached to your Form 1040 filing.
Notes: This schedule reports new Additional Deductions.
HEALTH & MEDICAL EXPENSES
Health savings accounts (HSAs):
The definition of a high-deductible health plan, which is a prerequisite to funding an HSA, means a policy with a minimum deductible for 2025 of $1,650 for self-only coverage and a maximum out-of-pocket cap on co-payments and other amounts of $8,300. These limits are doubled for family coverage ($3,300/$16,600) {41.10}. The contribution limit for 2025 is $4,300 for self-only coverage and $8,550 for family coverage (41.11}. Those age 55 or older and not yet on Medicare can add an additional.
Deduction limits for long-term care premiums:
The maximum amount of age-based long-term care premiums that can be included as deductible medical expenses for 2025 (subject to the AGI floor; see 15.1) is $480 if you are age 40 or younger at the end of 2025; $900 for those age 41 through 50; $1,800 for those age 51 through 60; $4,810 for those age 61 through 70; and $6,020 for those over age 70 {15.15}.
Premium tax credit:
For 2025, the premium tax credit is allowed even if household income exceeds 400% of the federal poverty line. The required contribution percentages are reduced (25.13).
EDUCATION, SAVINGS & CREDITS
Education-related tax breaks:
Educator expenses of up to $300 are deductible for 2025.
Eligibility for saver's credit:
The adjusted gross income brackets for the 10%, 20%, and 50% credits are increased for 2025. No credit is allowed when AGI exceeds $39,500 for single taxpayers, $59,250 for heads of households, and $79,000 for married persons filing jointly. ABLE account contributions can qualify for the credit (25.12}.
VEHICLE & ENERGY CREDITS
Clean vehicle credit:
Credit of up to $7,500 for eligible new clean vehicles and up to $4,000 for eligible previously owned clean vehicles. Specific criteria must be met and must purchase must have occurred by September 30, 2025 (25.16}.
Vehicle depreciation limit:
For a vehicle placed in service in 2025 and used over 50% for business, the first-year depreciation limit using bonus depreciation is $20,200. However, if you elect not to have bonus depreciation apply, or you are not eligible for the bonus, the first-year depreciation limit is $12,200 {43.5}.
Residential energy efficient property credit:
The credit for installing solar energy in your residence is 30% for 2025 (25.15}. However, note the One Big Beautiful Bill Act eliminates many residential energy efficient property credits over time between 2025 and 2026.
Clean/green energy credits (individual):
Status: Phasing out (varies by credit)
Effective Years: Some 2026-2028 phaseouts
What Changed/Details: Several individual-facing energy credits phase out sooner than prior schedules
Notes: Check specific credit eligibility and sunset dates
GAMBLING, CHARITABLE CONTRIBUTIONS, & ITEMIZED DEDUCTIONS
Gambling:
Status: Permanent
Effective Years: 2026 and beyond
What Changed/Details: Gambling losses for itemized deductions will be limited to 90% of gambling winnings
Notes: Still must itemize to deduct gambling losses
Charitable contributions:
Status: Permanent change
Effective Years: 2026 and beyond
What Changed/Details: New 0.5% AGI floor for deductibility of charitable gifts Non-itemizers may deduct $1,000 ($2,000 if married) as a for AGI deduction.
Notes: May encourage bunching or use of DAFs
Miscellaneous itemized deductions (2% of AGI):
Status: Permanent disallowance
Effective Years: 2026 and beyond
What Changed/Details: Disallowance made permanent; items like investment fees, tax prep fees remain non-deductible
Notes: Had been scheduled to sunset after 2025
Pease overall itemized deduction limitation:
Status: Permanent repeal; 35% rate cap applied
Effective Years: 2026 and beyond
What Changed/Details: Pease limitation repealed; introduces a 35% rate cap on itemized deductions
Notes: Rate cap limits value of itemized deductions at top brackets
Mortgage loan interest deduction:
Status: Permanent
Effective Years: 2026 and beyond
What Changed/Details: The ability to deduct Private Mortgage Insurance (PMI) returns.
Notes: Effective starting in 2026
SALT deduction cap:
Status: Temporary
Effective Years: 2025-2029 at $40k cap; 2030+ reverts to $10k
What Changed/Details: $40,000 cap with 1% annual index (2026-2029); phased down above $500k MAGI by 30% of excess; floor $10k
Notes: Cap never below $10k; MFS half amounts
INTERNATIONAL & WEALTH TRANSFER
Foreign earned income and housing exclusions:
The maximum foreign earned income exclusion for 2025 is $130,000 {36.1}. The limit on housing expenses that may be taken into account in figuring the housing exclusion is generally $390,000, but the limit is increased by the IRS for high cost localities (36.4).
Annual gift tax exclusion; gift tax and estate tax exemption:
The annual gift tax exclusion is increased to $19,000 per done for 2025 gifts of cash or present interests {39.2}. The basic exemption amount for 2025 gift tax and estate tax purposes increases to $13,990,000 {39.4, 39.9}. The top tax rate remains at 40% (39.9).
Estate & gift tax basic exclusion (update):
Status: Permanent
Effective Years: 2026 and beyond
What Changed/Details: Exclusion set to $15M and indexed for inflation
Notes: Plan gifting/estate strategies under higher unified credit
STANDARD & SENIOR DEDUCTIONS
Standard deductions:
The basic standard deduction for 2025 {14.1} is $31,500 for married persons filing jointly and qualifying surviving spouse, $23,625 for heads of households, or $15,750 for single taxpayers or married persons filing separately. The additional standard deduction {14.4} for being 65 or older or blind increases to $2,000 if single or head of household ($4,000 if 65 and blind). If married filing jointly, the additional standard deduction increases to $1,600 if one spouse is 65 or older or blind, $3,200 if both spouses are at least 65 (or one is 65 and blind, or both are blind and under age 65).
Standard deduction (permanent update):
Status: Permanent
Effective Years: 2025 and beyond
What Changed/Details: Higher amounts indexed (e.g., $31,500 MFJ for 2025)
Notes: Exact amounts adjust annually for inflation
Senior additional deduction:
Status: New (duration TBD)
Effective Years: 2025 and beyond (per IRS newsroom)
What Changed/Details: New additional deduction for seniors
Notes: Dollar amount and eligibility details forthcoming from IRS
INDIVIDUAL INCOME TAX RATES & BRACKETS
Tax rate brackets and preferential rates for capital gains/qualified dividends:
The rate brackets for 2025 ordinary income remain at 10%, 12%, 22%, 24%, 32%, 35% and 37%, but the taxable income amounts in each bracket have changed. The top bracket of 37% for 2025 applies if taxable income exceeds $626,350 for single taxpayers and heads of households, $751,600 for married persons filing jointly and qualifying surviving spouse, and $375,800 for married taxpayers filing separate returns {1.2}.
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Qualified dividends {5.2} and long-term capital gains {6.3} may escape tax entirely under the 0% rate, or be subject to capital gain rates of 15% or 20% depending on filing status, taxable income, and how much of the taxable income consists of qualified dividends and eligible long-term gains {6.3). The 20% capital gain rate applies in 2025 when taxable income exceeds $533,400 for single taxpayers, $566,700 for heads of households, $600,050 for married persons filing jointly and qualifying surviving spouse, and $300,000 for married persons filing separately. The 0%, 15%, and 20% rates do not apply to long-term gains subject to the 28% rate (collectibles and taxed portion of small business stock) or the 25% rate for unrecaptured real estate depreciation {6.3).
Individual tax rate schedules:
Status: Permanent
Effective Years: 2025 and beyond
What Changed/Details: TCJA brackets retained; 37% top rate made permanent
Notes: Eliminates 2026 reversion to pre-2018 brackets
Alternative minimum tax (AMT) exemption and tax brackets:
The AMT exemptions, exemption phaseout thresholds, and the dividing line between the 26% and 28% AMT brackets are adjusted for inflation. The 2025 AMT exemptions (prior to any phaseout) are $137,000 for married couples filing jointly and qualifying surviving spouse, $88,100 for single persons and heads of households, and $68,500 for married persons filing separately. See 23.1 for exemption phaseout rules and AMT calculation details. All nonrefundable personal credits may be claimed against the AMT as well as the regular tax {23.3}.